Interim Results

23 November 2012

Sweett Group plc

("Sweett Group" or the "Group")

Interim results for the six months ended 30 September 2012

Sweett Group is a global business with expertise in property and infrastructure professional services. Our services include cost management, programme and project management, strategic advisory and PPP/PFI consultancy services. The Group was founded in 1928 and employs over 1,300 staff across Europe, the Middle East and Asia Pacific.

The Group is pleased to announce its unaudited interim results for the six months ended 30 September 2012.

Financial highlights

♦ Before exceptional administrative expenses of £0.3m (2012 H1 £0.9m and 2012 FY £1.3m) and amortisation of acquired intangibles of £0.2m (2012 H1 £0.2m and 2012 FY £0.5m).

Operational highlights

·; Diversified order book continues to grow and now stands at £92m (31 March 2012: £90m), 60% of which represents orders from outside Europe;

·; Full benefit now being realised from last year's restructuring, resulting in £2m of annualised cost savings;

·; Solid operational performance in Europe, with a number of significant commissions in energy and infrastructure sectors;

·; Divestment of PFI assets proceeding according to plan;

·; Middle East business returns to profitability;

·; Slowdown in Chinese economy and Australian public sector spending reflected in Asia Pacific operating performance.

Chairman Michael Henderson said:

"The improved trading performance was in-line with management's expectations. The disposal of our investments in the Plymouth LIFT and Inverclyde Schools PFI projects generated £1.2m of the profit reported for the period. This programme of disposals is designed to release funds to reduce net debt and to reinvest in our core business operations.

"In Europe we continue to benefit from the restructuring actions completed last year, whilst our investments in the energy and infrastructure sectors have resulted in a number of major commissions.

"We have refocused our Middle East business and have returned to profitability.

"The Group's main target growth market remains Asia Pacific although we are seeing a slowdown in China due to the slowing economy. Diversifying our service offering and sector expertise and cross-selling opportunities throughout the whole of the region is, however, starting to provide benefits. In Australia we are re-aligning our business to the more vibrant private sector, which includes direct investors from China.

"The Group's order book currently stands at £92m and shows a healthy split between Europe (40%), Asia Pacific (54%) and MEAI (6%). The benefits of the Group's global footprint are also evidenced by the order book's balance, with a pick-up in bidding activity across all regions.

"Although net debt increased from the year end due to an increase in receivables, particularly in China, we have kept well within our banking covenants.

"The business is diverse in terms of the geographies and sectors within which it operates. Although margin pressure continues to depress the trading performance in some regions, including China and Europe, we are nevertheless seeing an encouraging improvement in the financial performance of the Middle East. We are focused on operating within our banking arrangements with further benefits from PFI disposals. The first half performance, successful entry into new sectors, forward order book and our continuing PFI/PPP asset disposal programme point to a stabilisation of the Group's fortunes and improving medium term prospects."

Enquiries

HALF YEAR MANAGEMENT REPORT

Review of Operations

During the period, the Group continued to capitalise on its global platform, diversifying its geographic presence and sector service offering. The Group's corporate client base continues to grow and a number of successful cross-selling commissions have resulted from our ability to provide clients with a consistent level of service.

The Group's management remains focused on continuing to grow the business largely through organic means, taking advantage of the benefits of our global reach, consolidated brand and reputation for independent advice. In addition, profits realised from the disposal of the Group's mature PPP investments will continue to be used to reduce net debt and for reinvestment in strengthening our core business operations.

Note: Order book figures do not include non-awarded work under framework appointments.

Europe

Revenue from Europe, which comprises our operations in the UK, Ireland, France and Spain, was £19.5m (H1 2012: £20.4m), accounting for 52% of the Group's revenue. Segment profit before exceptional expenses and amortisation of acquired intangibles was £1.6m (H1 2012: £1.2m) and the order book is £37m.

In Europe we continued to face challenging market conditions, as private sector investment struggles to fill the gap left by cuts to public sector spending. Nevertheless, our investments in targeting growth sectors such as energy and infrastructure, combined with our existing strength in key sectors such as health, retail and hospitality have contributed to a respectable performance in the period. The full benefits of the restructuring actions announced in September 2011 are being realised in the current year and have helped create a solid organisational platform for the business.

The Group's investments in the energy sector have resulted in three significant commissions during the period, including providing commercial support services to EDF Energy as part of a two-year framework on the construction of the proposed nuclear power station at Hinkley Point C. Work on the project has progressed quickly in the first half and the Group continues to supply additional resources to it.

In the transportation sector, the Group has secured a four year appointment under the framework agreement with Transport for London to provide a range of cost management services on a programme of investment aimed at improving capacity and service quality across the London Overground network.

In the public sector, despite falling overall spending levels, the Group has secured 20 framework appointments since the start of the calendar year. The Group has been particularly successful in the health and higher education sectors, securing appointments on the NHS Shared Business Services, NHS Design for Life, University College London, Middlesex University, University of Warwick and City University frameworks.

The Group's operations across Southern Europe (which comprise France, Spain and projects in Italy), have experienced significant headwinds resulting from the Eurozone crisis and government austerity initiatives, but are capitalising on pockets of private sector investment activity, including supporting UK-based clients such as Barclays and Primark.

Investments

Revenue from Investments was £0.3m (H1 2012: £0.6m), accounting for 1% of the Group's revenue. Segment profits before exceptional expenses and amortisation of acquired intangibles were £0.9m (H1 2012: £0.4m).

Following the disposal of the Group's investment in the South Ayrshire Schools project in June 2011, we completed the disposal of our investment in the Inverclyde Schools PFI project in July 2012, which had been deferred from the previous year, and also sold our investment in the Plymouth LIFT PFI project in September 2012. These transactions generated profits of £1.2m and are part of the previously announced strategic disposal programme that is continuing with the planned disposals in the second half of our investment in Dumfries & Galloway and interest in Leeds Social Housing.

Middle East, Africa and India

In the Middle East, Africa and India, our businesses are now operating profitably after a problematic previous year. Revenue was £5.6m (H1 2012: £4.7m), accounting for 15% of the Group's revenue. Segment profit before exceptional expenses and amortisation of acquired intangibles was £0.3m (H1 2012: loss of £0.5m) and the order book is £5m.

In the Middle East, the Group is benefiting from an increase in bidding activity across its traditional markets in Dubai and Abu Dhabi. The Group is targeting growth markets in Saudi Arabia, Oman and Qatar and has secured commissions on the Raffles Hotel in Jeddah and two leisure facilities in the King Abdullah Financial District in Riyadh.

In India, the Group has secured commissions for a 600-key luxury hotel in Chennai and a very large 40 million sq ft mixed-use development in Bangalore.

Asia Pacific

Revenue from Asia Pacific was £12.3m (H1 2012: £11.0m), accounting for 32% of the Group's revenue. Revenue in China and Hong Kong totalled £8.2m in the period. Segment profit before exceptional expenses and amortisation of acquired intangibles was £0.6m (H1 2012: £0.8m) with profits in China and South-East Asia impacted by weaker numbers in Australia. The Asia Pacific order book is £50m.

The Asia Pacific region remains the Group's main target growth market, although in China the slowdown in the economy and, in particular, Government restrictions on residential sales, dampened activity. However, we believe underlying demand for residential properties remains strong and, while the recent boom years are unlikely to be repeated, the medium to long term demand for our services in this sector will recover. Meanwhile our work in other sectors continues to grow with new commissions during the period for Huawei (hi-tech), Baidu (corporate HQ), SOHO China (office/commercial) and we continue our strategy of diversifying our offer to include project management and specialist services, and expanding our client base to include FDI businesses. Examples include Nike, Jimmy Choo, BMW, Morgan Stanley and continuing work for Tesco.

Progress has also been made in diversifying the Group's service offering in the region, initially in mainland China and Hong Kong, where the Group is successfully developing its project management, dispute resolution and programme management expertise.

Activities in Hong Kong continue at an encouraging pace with new commissions during the period for the Airport Authority, Mass Transit Railway Corporation, Jockey Club and Government Services. Examples of service diversification include:

·; project management commissions for Merlin Entertainment, Shanghai Tang and others;

·; dispute resolution work for the Government, HK Construction and Kerry Logistics; and

·; programme management with commissions for Goldman Sachs, McLarens Young and China Light and Power.

In South-East Asia, the Group operates from its hub in Singapore and significant progress has been made in developing the corporate client base. Major commissions include work for Nike, Global Switch, Hewlett Packard and Barclays. Our start-up office in Thailand has now grown to 10 staff with a steady order book and a high level of interest in our service. In Vietnam, progress towards registration has proved slow but has now been completed. The Group is considering further expansion into Indonesia and Malaysia.

The Group's operations in Australia performed below management's expectations with a reported trading profit margin for the half year of only 2% of revenue resulting in a small loss before tax. Underlying business performance in Victoria and New South Wales was close to targeted levels but offset by slower than expected public sector activity in Queensland and a weak performance in the Aged Care Sector. The Australian operations will benefit in the coming years from closer integration with the Asia Pacific regional operations including inward investment projects, significant opportunities within the defence sector and a push into infrastructure work. The goodwill attached to this business is being monitored and will be reviewed at the year-end in light of the prospects from these new initiatives.

Results

Group revenue for the period was £37.7m (2012 H1: £36.1m). Pre exceptional operating profit was £2.5m (2012 H1: £1.0m) and operating profit margin was 6.6% (2012 H1: 2.8%). Pre exceptional profit before tax was £2.1m (2012 H1: £0.9m). Profit before tax was £1.6m (2012 H1: loss of £0.2m) and basic earnings per share were 1.8p (2012 H1: loss of 0.5p). At the period end the Group had net borrowings of £9.5m (2012 H1: £10.8m). Exceptional administrative expenses of £0.3m (2012 H1: £0.9m and 2012 FY: £1.3m) comprised restructuring initiatives to reduce the ongoing cost base. Amortisation of acquired intangibles amounted to £0.2m (2012 H1: £0.2m and 2012 FY: £0.5m).

Exchange rate movements in the Group's major trading currencies had a minimal impact on both revenue and results.

Consolidated Statement of Cash Flows

Net debt increased in the period from £8.2m to £9.5m, though reduced from £10.8m at the end of September 2011.

The increase in net debt during the period reflects the increase in receivables by £4.1m which offset an increase in payables and the cash inflow from the Plymouth LIFT sale. The Group's lock-up (the number of days' trading represented by receivables and work in progress) was 87 days at 31 March 2012 and 115 days at 30 September 2012. Much of the increase is attributable to higher than normal work in progress and receivables particularly in China. Considerable additional effort continues to be employed to effect a reduction in lock-up to get closer to the Group's targets, particularly in China and the UK.

Principal risks and uncertainties

The principal risks and uncertainties that existed on publication in September 2012 of the Group's annual report and audited accounts for the year ended 31 March 2012 and which were itemised in the risk management review are unchanged. They comprise market conditions, growth and integration, financial, systems and IT, reputation, people and health, safety and environment risks. A number of these risks remain relevant to the going concern assessment through the rest of the year as they relate to second half activities, notably the Investment disposals and the improvement in lock up.

Going concern

The Group's activities are funded by a combination of long-term equity funds, bank loan facilities (that are reducing), revolving credit and overdraft facilities all from Bank of Scotland plc and smaller overdraft facilities overseas. In considering the ability of the Group to meet its financial obligations as they fall due and its financial covenants, the Board has again modelled a wide range of cash flow forecasts with sensitivities taking account of the range of trading performance of the Group, including issues relating to margin pressures and working capital requirements, the levels of overheads and finance costs to be incurred, loan repayments and payments in respect of past and future acquisitions and the continuing PFI/PPP asset disposal programme.

The principal sensitivities and actions taken or being taken to address each are:

·; PFI/PPP asset disposals. We are negotiating the sale of the Dumfries & Galloway loan notes for £2.2m and anticipate completion in the second half;

·; Exposure to future PFI/PPP investments is being minimised by entering into arrangements with external funders;

·; Exposure to currently capitalised work in progress and bid costs on the Leeds Social Housing project amounting to £800,000. Progress continues to be made towards financial close in the second half without further financial contribution from the Group;

·; Maintenance of acceptable trading margins, volumes and supporting order book. The Group's margin and net profit out-turns and forecasts are under constant review. The gross margin of 30.5% for the first half is an improvement of 1.0% over the margin for the year to 31 March 2012 and compares with an expected 32.5% for the second half;

·; Deferred consideration to Widnell Limited vendors. Agreement has been reached with the vendors to extend the payment terms for the outstanding acquisition consideration of £3.1m. Approximately £550,000 of the liability has been discharged since 30 September 2012;

·; Working capital. Significant steps have been taken not only to considerably improve billing and debt collection processes, but also to target prospective working capital requirements attaching to new projects such that management expect the lock-up to fall to 100 days at the end of the second half;

·; Availability of banking facilities. The availability of the existing £5m overdraft facility has been extended to December 2012 and the revolving credit facility of £5m is committed until September 2013. The Board currently has no reason to believe that these facilities will not be renewed or replaced with new acceptable facilities at the respective due dates.

The Board is confident that it has the right strategy and action plan to operate within the requirements of the Group's bank covenants and, on this basis, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Board has adopted the going concern basis in preparing these Interim financial statements.

Dividend

The Board has declared an interim dividend of 0.3 pence per share (2012 H1: 0.2 pence per share) payable on 17 January 2013 to shareholders on the register at 14 December 2012.

Outlook

The business is diverse in terms of the geographies and sectors within which it operates. Although margin pressure continues to depress the trading performance in some regions, including China and Europe, we are nevertheless seeing an encouraging improvement in the financial performance of the Middle East. We are focused on operating within our banking arrangements with further benefits from PFI disposals. The first half performance, the forward order book and our continuing PFI/PPP asset disposal programme point to a stabilisation of the Group's fortunes and improving medium term prospects.

Forward-looking statements

 Certain statements in this announcement are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risk and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Sweett Group plc

Consolidated Income Statement (unaudited)

for the six months ended 30 September 2012

Sweett Group plc

Consolidated Statement of Comprehensive Income (unaudited)

for the six months ended 30 September 2012

Sweett Group plc

Consolidated balance sheet (unaudited)

Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Sweett Group plc

Consolidated Statement of Cash Flows (unaudited)

Sweett Group plc

Notes to the Financial Information

1. Basis of preparation

General information

Sweett Group plc is a company incorporated and domiciled in the United Kingdom. The address of the registered office is 60 Gray's Inn Road, London, WC1X 8AQ. The principal activities of the Group include the provision of construction cost consultancy, project management and other specialised consultancy services, including building surveying.

This financial information is presented in pounds sterling, the currency of the primary economic environment in which the group operates. The group comprises the company and entities controlled by the company (its subsidiaries).

Basis of preparation

The condensed consolidated financial information presented is for the six month periods to 30 September 2012 and 2011 and the full year to 31 March 2012.

The most recent statutory accounts of the Group, prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, are for the year ended 31 March 2012, which have been delivered to the Registrar of Companies. The audit opinion on the statutory accounts for the year ended 31 March 2012, including an emphasis of matter concerning the ability of the company to continue as a going concern, was unqualified and unmodified.

This condensed interim consolidated financial information has been prepared in accordance with the requirements of the AIM Rules and in accordance with IFRSs as adopted by the European Union and is presented on a basis consistent with the accounting policies adopted in the consolidated financial information of Sweett Group plc for the year ending on 31 March 2012. It does not constitute accounts as defined by section 434 of the Companies Act 2006. This condensed interim consolidated financial information has not been reviewed or audited by the Group's auditors.

Estimates and judgements

The preparation of accounts in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and various other assumptions that management and directors believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.

Areas comprising critical judgements that may significantly affect the Group's earnings and financial position are revenue recognition, valuation of intangibles including goodwill, restructuring activities, provisions for bad debts, provisions for pensions, income taxes, and share-based payments.

After making enquiries, the Board has a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim results and financial statements.

Accounting policies

The accounting policies and methods of calculation adopted are consistent with those of the annual financial statements for the year ended 31 March 2012, as described in those annual financial statements. The Annual Report and Accounts for the year ended 31 March 2012 contain details of new standards, amendments and interpretations which have been adopted, none of which have had a significant effect on the reported results or financial position of the Group for the six months ended 30 September 2012.

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as being the Board.

The Board considers Sweett Group's business and internal reporting by geography, being Europe (excluding the Investments business), Investments, the Middle East, North Africa & India and Asia Pacific. All four categories generate revenues from the provision of quantity surveying, project management and specialist services / management consultancy and the Investments business also generates profits on the disposal of its PPP/PFI financial assets available for sale.

The Board assesses performance based on a measure of earnings before interest and tax (EBIT). This measurement is net of intra-group trading balances and this basis excludes the effects of corporate and central costs. Interest income and expenditure are not included in the result for each operating segment that is reviewed by the Board.

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis (continued)

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis (continued)

* Unallocated corporate costs comprise directors' remuneration, advertising, public relations, corporate financing costs, legal and professional fees and exceptional administrative expenses incurred by Sweett Group plc. They include for the year ended 31 March 2012 £156,000 of exceptional administrative expenses.

** Exceptional administrative expenses comprise restructuring costs of £328,000 for the 6 months to 30 September 2012 and £863,000 for the 6 months to 30 September 2011. Exceptional administrative expenses for the year to 31 March 2012 comprise restructuring costs of £1,193,000 and impairment losses on trade and other receivables of £70,000.

The assets of the segments include intangible assets, property, plant and equipment, assets from finance leases, financial assets, trade receivables and other receivables, deferred tax assets and cash and cash equivalents. The liabilities comprise trade and other payables, current tax liabilities, financial liabilities, deferred tax liabilities, provisions and retirement benefit obligations.

Sales between segments are transacted at arm's-length. External revenue reported to the Board is measured in a manner consistent with that in the income statement.

Sweett Group plc

Notes to the Financial Information (continued)

3. Income taxes

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. This is expected to be 26% for the full year on continuing operations (30 September 2011: 29%) representing the increased proportion of the Group's profits earned in lower tax jurisdictions. In the year to 31 March 2012 there was a small charge to taxation in respect of the reported loss before taxation.

4. Dividends

The Board has declared an interim dividend in respect of the half year of 0.3 p per share (2012: 0.2p), which is not reflected in this financial information. The interim dividend is payable on 17 January 2013 to ordinary shareholders on the register at the close of business on 14 December 2012 and will be recorded in the financial statements for the year ending 31 March 2013. The final dividend of 0.3p per share in respect of the year ended 31 March 2012 was paid on 12 October 2012. This amounted to £203,072. The final dividend of 0.8p per share in respect of the year ended 31 March 2011 amounting to £530,256 was paid during September 2011.

5. Earnings per share

Sweett Group plc

Notes to the Financial Information (continued)

6. Trade and other receivables / trade and other payables

Trade and other receivables have increased by £4.1m during the period. Material elements are increased WIP in China of £1.3m, an increase in trade receivables in the Middle East of £0.9m, relating to increased activity levels on the Dubai Airport contract and increased retentions on the CMA Tower contract in Saudi Arabia, and increased prepayments in the UK of £0.5m.

Trade and other payables have decreased by £0.3m during the year. Material elements are a £2.2m reduction since the proceeds from Inverclyde have now been recognised on the disposal and UK trade payables increased by £1.2m primarily owing to the increased use of sub-consultants on new projects.

7a. Cash flow from operations

Sweett Group plc

Notes to the Financial Information (continued)

7b. Reconciliation of net cash flow to movement in net debt

8. Goodwill